Posts Tagged ‘Real Estate’

Private capital being unleashed on the residential housing market …. finally!

April 25, 2012

Way back in November 2008 —  in a post titled:  “Big Idea: Rallying private capital to stabilize housing prices.”  — I proposed a plan to resuscitate the residential housing market.

The essence of the plan (in 2008) was to:

  1. Eliminate ALL of the capital gains taxes on residential property that is bought from now until, say, December 31, 2010 and held for at least 18 months,
  2. Allow these “qualified residential properties”, if they are rented, to be depreciated for tax purposes at an aggressively accelerated rate (say, over 5 or 10 years) to generate high non-cash tax losses, and
  3. Allow ALL tax losses generated by these “qualified residential rental properties” to offset owners’ taxable ordinary income with no “passive loss’ limitations, thereby reducing their federal income tax liability.

At the time, I said “the positive results are practically guaranteed”.

Well, almost 4 years later, look what’s happening — even without the bold strokes that I suggested.

The NY Times reports that “Investors Are Looking to Buy Homes by the Thousands”.

Some deep-pocketed investors are betting that the residential real estate market is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants.

There are close to 650,000 foreclosed properties sitting on the books of lenders.

An additional 710,000 are in the foreclosure process, and about 3.25 million borrowers are delinquent on their loans and in danger of losing their homes.

With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans.

Investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends.

At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.

Imagine if the movement had started 4 years ago.

And, imagine if the movement was boosted with the tax incentives,

It’s late, but not too late.

As I said before; “the positive results are practically guaranteed”.

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Unleashing private capital to stabilize the housing market … it’s happening !

February 8, 2012

For a couple of years (literally – back as far as Nov. 2008), I’ve been blogging that the key to stabilizing the housing market is incentivizing private capital (i.e. investors) to buy up distressed properties and rent them.

To refresh your memory, here’s the plan I advocated.

  1. Eliminate future capital gains taxes on any residential property bought in the next 2 years, and held for at least 3 years.
  2. Allow investors (i.e. landlords) who rent the properties to depreciate the properties on an aggressively accelerated basis (i.e. say, 5 years),
  3. Allow any excess tax losses from renting to be applied to ordinary income.

I argued that the likely outcome: a massive inflow of private capital to buy residential properties, housing prices would be bid up, folks would have access to affordable rentals, and the economy would be stimulated … REALLY stimulated.

Well, BusinessWeek reports that “the dealmakers running America’s private equity firms see opportunity in one of the most distressed precincts of the U.S. economy: residential housing”

Buyout funds are raising billions to convert foreclosed homes into rentals, which Washington hopes will improve the housing market

For example:

  • GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals
  • GI Partners, a Menlo Park (Calif.) private equity fund, expects to invest $1 billion
  • Los Angeles-based Oaktree Capital Management will spend $450 million on similar housing deals.
  • Cerberus Capital Management, (DB)Deutsche Bank, (FIG)Fortress Investment Group, and Starwood Capital Group sponded to an Administration request for proposals on how to dispose of the government’s inventory of foreclosed homes.

Some pundits say: “This will be a new institutional asset class in the next 24 months.”

Why the enthusiasm?

  • Obviously, low prices and high demand for rentals make the market intriguing.
  • About 7.5 million homes with a market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016.
  • “The share of Americans who are willing and able to own their own home is still falling,”
  • 20 million single-family homes are already serving as rentals
  • Single-family home rentals — which have yielded annual returns averaging 8.1 percent since 1990 — can generate cash flows that are 3 percentage points higher than apartments.
  • The U.S. government is eager to clear out the foreclosed properties now on its books.

Hmmm.

Imagine if there was a tax incentive … and imagine if the program had been in place for a couple of years …

Oh, well.

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Malls Replace Closed Circuit City Stores with……… Gun Shops?

November 2, 2011

TakeAway: Malls and shopping centers are countering lower traffic and closings of traditional brick and mortar stores by turning to unique shops and services to draw revenues.

* * * * *
Excerpt from WSJ: “New Tricks for Old Malls”

Mall giant Simon Property Group opened an aquarium at its Grapevine Mills mall. Real-estate brokerage Jones Lang LaSalle  put a fencing academy in a former Old Navy store, and a community theater on the lower level of a former Boscov’s store.

Perhaps the most unusual use of a former big-box store is William James’s Arms Room gun shop and shooting range, which opened last year in a former Circuit City store.

Rising retail vacancies, and loosening rent demands from landlords at struggling shopping centers, are creating opportunity for tenants previously housed in community centers, industrial parks and home basements.

“In the past, we’ve typically been in industrial parks because of the [low] cost per square foot,” said Howard Picker, founder of Speed Raceway. But retail landlords “are coming down on price and more willing to work with tenants like us,” he said.

The proliferation of “nonretail” tenants comes as traditional stores cede ground in U.S. shopping centers because of constrained consumer spending and decades of retail overbuilding in the U.S.

Landlords are embracing unusual tenants as a way to continue drawing visitors to their shopping centers, even if those patrons aren’t necessarily coming to shop.

A little extra traffic generated by a gym or a trampoline center is better than an empty storefront that draws no one, they say.

Edit by ARK

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